Twenty years of praising India is not a China strategy

When Prime Minister Narendra Modi visited Australia this month (Opens in new window), India was presented as a critical economic partner, a top-tier security partner and central to a stable Indo-Pacific. The summit package (Opens in new window)after his meeting with Prime Minister Anthony Albanese stretched from defence and maritime security to energy, critical minerals and resilient supply chains.

For 20 years, Western governments have described India as indispensable to the 21st-century order. US President George W. Bush crystallised an emerging rapprochement in 2005 (Opens in new window), breaking with American orthodoxy to remake the relationship. But the West treated the breakthrough as diplomatic realignment, not the beginning of an industrial rebalancing.

The political pivot occurred. The capital pivot did not.

When Bush struck the civil nuclear bargain, China’s stock of inward foreign direct investment was already roughly seven times (Opens in new window) India’s. India’s stock has risen, but China’s absolute lead has expanded from hundreds of billions of dollars to more than US$3 trillion.

For more than three decades – accelerating after China entered the World Trade Organisation in 2001 – Western capital helped compound China’s industrial advantage. Each new factory strengthened logistics, deepened supplier networks and expanded technical capability. The conditions that attracted capital were increasingly the product of capital already invested.

What served Western commercial optimisation has come to align with Chinese strategy. Beijing seeks to reduce its exposure to foreign technology and disruption while preserving China’s centrality to global manufacturing (Opens in new window). The result is asymmetric dependence.

Modi has spent more than a decade trying to convert India’s demographic and geopolitical scale into industrial power, with promising but uneven results. But India cannot become a second centre of industrial gravity through domestic reform alone.

The West is trying to correct a compounded strategic error by relying on incremental corporate decisions. Companies are encouraged to adopt “China plus one”, but they face incentives that favour China. China has the ports, suppliers, components, skills and industrial density that rising industrial powers are still trying to build.

The policy failure is to mistake the accumulation of fragmented corporate decisions for strategic rebalancing. Governments now ask firms to bear the cost of reversing a concentration created by decades of collective investment and reinforced by Western policy.

Industrial advantage is cumulative. In 2025, India’s FDI inflows were only about 37% of China’s (Opens in new window). Even if India eventually overtook China in new inflows, closing the inherited gap could take decades. Building a genuine alternative requires governments to alter the conditions under which private investment becomes commercially rational at scale, not to direct individual investments.

Vietnam, Mexico, Indonesia and others can absorb specific industries and create valuable redundancy. But none can anchor a self-reinforcing industrial alternative at continental scale.

India can.

India need not absorb every industry concentrated in China or reproduce China’s industrial model. But no alternative network can acquire comparable strategic weight without India at its centre.

India’s infrastructure, administrative complexity, skills base and manufacturing depth remain uneven. Those are reasons to structure investment and reform intelligently, not to pretend another country offers comparable scale.

Western policy often treats India as a participant within an architecture designed by the United States and its allies. That is a category error. Middle powers such as Australia and Canada exercise influence through alliances, specialist capabilities and coalition-building. India is an independent strategic pole with the scale to become an industrial one: the world’s most populous country, a nuclear-armed continental state, an Indian Ocean power and an economy projected to become the world’s third largest by the end of the decade (Opens in new window).

Yet India is too often judged against the standards of a compliant ally. Will it follow Washington on Russia? Will it subordinate other relationships to a common strategic program?

It will not. India will bargain, hedge, dissent and pursue its own interests.

But no perfectly aligned industrial counterweight is waiting elsewhere. The strategic autonomy that frustrates Washington also constrains Beijing.

Alignment is desirable. Scale is indispensable. The relevant choice is between a strategically autonomous India and continued industrial dependence on a strategic competitor.

The West is demanding greater alignment from the country it needs to strengthen than it demanded from the adversary it allowed itself to depend upon. That is not prudence. It is a failure to distinguish control from advantage.

Australia cannot finance India’s industrial transformation. But it can integrate critical minerals, energy and defence cooperation into a broader industrial strategy. The investment relationship remains underdeveloped: India is Australia’s fifth-largest export market and 11th-largest import source, but ranks only 21st as a destination for Australian investment. (Opens in new window)

India is not yet the anchor of an industrial alternative capable of balancing China. But it is the only country with the scale to become one.

It will remain strategically autonomous and – from the perspective of Western capitals – an imperfect partner. That imperfection is less dangerous than continued dependence on China.

The strategic objective is not an aligned India. It is an India large enough to make dependence on China optional.